How Capitalist Is N.Korea?

A nascent market economy began to develop across North Korea after the famine of the mid- to late 1990s, which prompted many to seek other ways to make a living rather than relying on the state. Now more North Koreans are believed to rely on the informal market economy than in East Germany, the Soviet Union and China when they opened to the outside world.

More than 80 percent of North Koreans are apparently buying and selling goods in the black market or engaging in other commercial activities to make ends meet, learning about free market economics.

Experts say the trend is wide-spread and mature enough to dispel concerns that North Koreans, once reliant on state handouts, would have a hard time adjusting to capitalism if the two Koreas are reunited.

◆ Commercial Activity

One study based on 2009 census data suggests that 83 percent of North Koreans or 14.48 million derive some of their income from commercial activity. In North Hamgyong Province, which suffered heavily from famines, the figure is nearer 93 percent, and even in Pyongyang, which still has a functioning ration system, the proportion is 56 percent.

Another study by Seoul National University finds that 70 percent of North Korean defectors had experience selling goods in open-air markets or other commercial activity. And that applies even to 68 percent of defectors who were privileged members of the Workers Party.

The younger, the more experience they had, with 92.3 percent in their 30s and 88.2 percent in their 40s.

Hardly any said their main source of income was payments earned working in state-run factories, and 42.2 percent said they received no handouts from the state.

North Koreans look at a tablet PC at an exhibition of products from around the world in Pyongyang in September last year. /[North] Korean Central TV

In contrast, 13.2 percent of the defectors said their entire household made up to W1 million (US$1=W1,051) selling goods or other commercial activities, while 13.7 percent said they made up to W500,000, 31.7 percent up to W300,000 and 16.6 percent up to W100,000. And 15.1 percent said they made more than W1 million.

Eight out of 10 North Koreans did not receive even W10,000 from the state, while more than seven were earning more than W100,000 selling goods.

Kim Byung-yeon at Seoul National University said North Koreans sold anything from fruit and vegetables grown in their own gardens to meat and fish, home-made food products, goods stolen from state factories, products smuggled across the border and even international aid goods. The range has diversified even more recently.

◆ 500,000 Businesses

Cho Bong-hyun of the IBK Economic Research Institute said there are around 500,000 businesses in the North at present. Around 400,000 are small service businesses such as barber shops and restaurants, and around 100,000 are involved in manufacturing. Although private businesses are prohibited in principle, they are tolerated as long as they give a portion of their earnings to the state. This has created employers like store owners and people who own fishing boats or transport.

An informal financial market has also sprung up in the form of loan sharks who have grown rich selling goods at open-air markets and have now turned to lending money. "These loan sharks are expanding their influence in the financial market by even settling huge trade payments for merchants, and some rent out business licenses from the state," said one source.

North Korea recently tweaked its laws to enable factories or other businesses to obtain loans. Cho said, "North Korea experienced the market economy through the inter-Korean Kaesong Industrial Complex and there won't be major obstacles in shifting to a capitalist system after reunification."